General Instructions

Each question should be attempted by a group of THREE or fewer students.

Your answers should be in the form of a Paper to be presented in a class.

There will be a class presentation. Please get prepared.

GROUP $1$

Explain how financial markets have evolved in Emerging Markets like Tanzania.

GROUP $2$

You bought a bond five years ago for shs$.935$ per bond. The bond is now selling for shs$.980.$ It also paid shs$.75$ in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond.

GROUP $3$

What is a convertible bond? Is a convertible bond more or less attractive to a bond holder than a non$-$convertible bond?

GROUP $4$

Refer to the bond information in Question $2.$ You expect to hold the bond for three more years, then sell it for shs$.990.$ If the bond is expected to continue paying shs$.75$ per year over the next three years, what is the expected rate of return on the bond during this period?

GROUP $5$

What is a callable bond? Is a call provision more or less attractive to a bondholder than a non$-$callable bond?

GROUP $6$

Why are mortgage markets studied as separate capital markets?

GROUP $8$

A $10-$year, $12\%$ semi$-$annual coupon bond, with a par value of shs$.1,000$ sells for shs$.1,100.$ What is the bond's yield to maturity?

GROUP $9$

A stock you are evaluating is expected to experience supernormal growth in dividends of $8\%$ over the next six years. Following this period, dividends are expected to grow at a constant rate of $3\%.$ The stock paid a dividend of shs$.5\mathrm{.}50$ last year and the required rate of return on the stock is $10\%.$ Calculate the stock's fair present value.

GROUP $10$

If the interest rate in the United Kingdom is $8\%,$ the interest rate in the United States

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is $10\%,$ the spot exchange rate is $$\frac{1\mathrm{.}75}{f},$ and interest rate parity holds, what must be the one$-$year forward exchange rate?

GROUP $11$

Suppose all of the conditions in Question $10$ hold except that the forward rate of exchange is $$\frac{1\mathrm{.}75}{}.$ How could an investor take advantage of this situation?

GROUP $12$

Describe the three forms of stock market efficiency.

GROUP $13$

You plan to purchase a house for shs$.115,000,000$ using a $30-$year mortgage obtained from your local bank. You will make a down payment of $20\%$ of the purchase price.

$($a$)$ Your bank offers you the following two options for payment:

Option $1$: Mortgage rate of $9\%$ and zero points.

Option $2$: Mortgage rate of $8\mathrm{.}85\%$ and $2$ points.

Which option should you choose?

$($b$)$ Your bank offers you the following two options for payments:

Option $1$: Mortgage rate of $10\mathrm{.}25\%$ and $1$ point.

Option $2$: Mortgage rate of $10\%$ and $2\mathrm{.}5$ points.

Which option should you choose?